Changes to the 'Non-Domicile' tax regime

The legislation enacting these changes was contained in the government’s annual budgetary legislation know as a Finance Act. As this Bill (Finance Act 2025) has recently received the necessary approval to pass into law, we are now in a position to assess the implications of this on our clients more effectively.

But what is the ‘Non-Dom’ tax regime, and how could this affect you (even if you are not considered a Non-Dom)?

What is a Non-Dom?

Non UK Domiciled individuals or ‘non-doms’ are people who are tax resident in the UK, but who claim that the centre of their personal and financial interests are outside of the UK. Domicile is an important concept which can impact how individuals are subject to income tax, capital gains tax (CGT) and inheritance tax (IHT) in the UK

Every individual has a domicile. Unlike residence, it is not possible to be domiciled in two countries or to not have a domicile. An individual’s domicile is usually either ‘Domicile of origin’ – taken from your father’s domicile at birth or ‘Domicile of choice’ - if you are over 16 and choose to leave your domicile of origin and live indefinitely in another country, you can acquire a new domicile of choice in that new country.

While your domicile is determined under common law, there are provisions in tax law that can deem you to be UK domiciled, if you meet certain conditions.

Why does this matter?

Individuals with their personal and financial interests outside of the UK, will potentially have income and capital gains from non-UK sources. While UK domiciled and tax resident individuals are taxable on their worldwide income and gains, until 5^th April 2025 Non-Doms were able to elect for a separate basis of taxation known as the ‘Remittance Basis.’ This prevents UK tax being charged on non-UK sources of income and gains.

What's changed?

From 6 April 2025, there is a new residence-based ‘Foreign Income and Gains’ (FIG) tax regime. Under this new system individuals will not pay UK tax on qualifying foreign income and gains arising in their first four years of tax residence. To be eligible for this treatment, individuals cannot have been a UK tax resident in the last 10 tax years.

Just like the current remittance basis, individuals choosing to be taxed under the new FIG regime will lose entitlement to the personal allowance and the CGT annual exempt amount. However, the changes mean that there will no longer be a tax charge to bring any “Foreign Income and Gains’ arising in this period into the UK.

Existing tax residents, who have been tax resident for fewer than 4 tax years who are eligible for the scheme, will also benefit from the relief until the end of their 4th year of tax residence. It is important to note that as the basic qualifying conditions are changing, many new individuals who would not have previously qualified as non-doms, may now be able to take advantage of these new tax rules, for example British expats returning to the UK after a period of at least 10 years of non-residency.

All former remittance basis users who are not eligible for the 4-year FIG regime will pay tax at the same rate as other UK resident individuals on any newly arising FIG like any other taxpayer. Former remittance basis users will continue to pay tax on FIG that arose before 6 April 2025 that they remit to the UK.

For those already benefiting from the remittance basis of taxation, the following transitional provisions will be introduced:

• Individuals who have claimed the remittance basis will when disposing of an asset held personally on 5 April 2017, be able to elect to rebase that asset to its value as at that date.

• The government will also offer a three-year temporary repatriation facility for individuals who have paid tax on the remittance basis prior to 6 April 2025. This will allow individuals to bring previously accrued foreign income and gains into the UK at a 12% rate of tax for 2025/26 and 2026/27, rising to a 15% rate for the tax year 2027/28.

The new repatriation facility is expected to bring in an additional £15bn of foreign income and gains onshore to the UK and raise over £1bn in additional tax receipts. When comparing the temporary 12% tax rate with what in many cases could be a 45% remittances charge, it is clear to see why there is likely to be a significant increase in UK remittances.

Overseas workday relief, to which non-doms on the remittance basis are currently entitled during their first three years of UK tax residence is set to be extended to 4 years, to align with the new FIG regime. However, this will be subject to new financial limits on the amounts of relief that can be claimed, being the lower of £300,000 or 30% of the individual’s total employment income.

How can Lovewell Blake help?

In an ever changing world, it is important to stay up to date with new rules and legislation to ensure you a maximising your tax efficiently and staying compliant with UK tax law. This is why Lovewell Blake provides a complete package of accounting services for international clients.

We have a great deal of experience advising clients on international tax matters, including those with non-dom tax status. Our advice includes reporting obligations in this country together with tax planning opportunities in line with current legislation.